MBL Cap Legislation Heading Into April Showdown

Legislation that would raise the cap on credit unions' business loans to members is poised for a mid-April showdown in the Senate.

Although credit unions failed to get a member business lending expansion package, S. 509, added to the JOBS bill that was passed by the Senate, credit union lobbyists did manage to convince Senate Majority Leader Harry Reid (D-Nev.) to bring the bill to the Senate floor for an up or down vote. The vote had not been officially scheduled as of press time.

S. 509, which was re-introduced as S. 2231 for procedural reasons, would raise the cap on credit union member business lending from 12.25% of assets to 27.5% of assets for credit unions meeting NCUA requirements.

During debate on the failed attempt to include the member business lending legislation as an amendment to the jobs bill, Reid praised the hard and persistent work of its chief sponsor, Sen. Mark Udall (D-Colo.) and noted that “there are always reasons for the bill not to be brought forward,” and pledged to see the bill advanced to the floor.

In supporting the bill, Udall said the Senate should pass it immediately. “If we did so, we would see immediate results,” he said.

Udall also cited stories of Colorado small businesses that were judged to be too small to garner attention from the banks but received assistance from credit unions in Colorado.

“It's hard to believe that the federal government is telling financial institutions they cannot help small businesses in their own communities,” the senator added.

But there was a procedural problem. Udall's original bill, S. 509, had been referred to the Senate Committee on Banking, Housing and Urban Affairs where banking opponents were expected to effectively kill it. So Udall re-introduced the legislation as another bill, S. 2231, which freed it up for debate and a possible vote in the Senate.

Brad Thaler, vice president for legislative affairs for NAFCU, applauded the move, saying it means the legislation could be moved to the Senate floor under a procedure called Rule 14. Rule 14 allows the majority leader to object to a bill being sent to committee after two readings, and instead bring it to the floor.

It is unclear when that might happen, however, and Thaler anticipated it might not be until after the Senate returns from its Easter recess in mid-April.

Even if the bill manages to pass the Senate, either as a standalone measure or as an amendment to another bill, there are no guarantees that it would clear the entire legislative process. First, while there is a companion measure in the House, it may not be easy to bring to the floor. Nor is there a guarantee that the House would take up the Senate bill. Second, as the election season draws steadily closer, it seems less and less likely that Congress will pass another piece of legislation that could serve as a vehicle for the member business lending bill.

Thaler remained optimistic, noting the strong bi-partisan support in the House that similar bills have had in the past and suggesting that a bill passed in the Senate would bring pressure to bear to pass it in the House, too. “We think it may be very hard to resist that,” he said.

Ryan Donovan, CUNA's senior vice president for legislative affairs, agreed with Thaler's optimism, predicting that the House would take up the Senate bill. “We have spent significantly more time on this issue in the House than in the Senate,” he noted.

In addition to procedural challenges, opposition to S.2331 has built up.

The American Bankers Association has begun urging its grassroots supporters to contact their senators to oppose the most recent attempt to raise the cap on credit union member business lending.

An email from the banking group rallies the troops against S. 2331. “A small, but aggressive, group of fast-growing credit unions are pushing legislation that would allow the NCUA to increase a credit union’s business lending cap from 12.25% to 27.5% of total assets,” the association wrote in its March 27 email. “Though the legislation’s title–the Small Business Lending Enhancement Act–attempts to play on concerns for stimulating the economy and creating jobs, there is no provision that would limit new lending to small businesses. Please write to your Senators today, asking them not to support the legislation, either as a stand-alone bill or as an amendment to other legislation on the Senate floor,” the association concluded.

In addition, the conservatorship of Telesis Credit Union, which had a significant member business lending profile, has fueled opponents’ efforts against the bill. The California Department of Financial Institutions conserved the 38,000-member, $318 million asset Telesis, headquartered in Chatsworth, Calif., and appointed the NCUA as the conservator on March 24. Telesis had lost a significant amount of money in both 2010 and 2011 and made member business lending a core part of its lending operations.

The Independent Community Bankers of America lost little time jumping on the Telesis troubles as a sign that the member business lending cap should not be increased.

“ICBA has said time and again that Congress enacted the tax-exempt credit unions member business lending caps for a good policy reason,” the community banking group wrote. “Credit unions are tax-exempt so they can serve individuals of modest means and common bonds. Allowing credit unions to expand their member business lending parameters could put many smaller credit unions into precarious situations, which could lead to failure.”

ICBA suggested that Telesis's problems were due, at least in part, to its exemption to make more member business loans than it would otherwise have been allowed under the cap.

“Telesis Credit Union was granted special permission to do member business lending beyond the 12.25% cap and was doing multimillion dollar commercial loans all around the country, including a failed Orlando, Fla. shopping center. Senators should ask if this sort of risky lending activity, which would increase if S. 2231 were to pass, is consistent with Congress’ intent of ensuring that tax subsidized credit unions serve people of modest means,” the trade group added.

But Donovan said this email has largely fallen on deaf ears in congressional staff offices where some staffers have commented on the irony of banks commenting on how credit unions make business loans after so many of them have failed in the last few years largely because of poorly performing business loans.